AUSVOTES ECONOMIC FACTS #11: Interest rates expected to drop under Labor

The economy is a dominant issue in the Election. From now until polling day, Independent Australia will outline some key facts on the economy that put the kybosh on many of the myths, lies and distortions being peddled in the election campaign.

This is the eleventh in a series of short articles by leading economist Stephen Koukoulas, which will be published daily up until the Federal Election on Saturday 3 May 2025.

FACT ELEVEN: LABOR IS A JOB-CREATING MACHINE

Based on polling and betting markets, the Albanese Labor Government is very likely to win the Election on 3 May.

This is noteworthy given that investors in money markets react to news — be it a global event, a local update on the economy, political risks and significant policy changes. Witness the extreme volatility in stock, bond and currency markets with each crazy utterance from the Trump Administration in the U.S., particularly concerning tariffs.

This brings us to the money market pricing for changes in official interest rates in the aftermath of the Election.

If investors were concerned about poor, misguided or inappropriate economic policy based on the election result, it would be reflected in the money markets.

At the time of writing, the markets are pricing in the following profile for official interest rates, acknowledging that these can change suddenly and dramatically as news and events unfold.

Compared with the current cash rate of 4.1%, the markets have the following expectations:

June 2025: 3.80% — Rates 30 basis points lower than today.
December 2025: 2.95% — Rates 115 basis points lower than today.
June 2026: 2.85% — Rates 125 basis points lower than today.

If investors are broadly correct and the market pricing for the next year or so comes to pass, interest rate settings will be at least a full percentage point lower by the end of 2025.

It is also noteworthy that every economist responding to the Australian Financial Review survey of interest rate expectations, including those expecting interest rate hikes in 2024, are forecasting multiple interest rate cuts in 2025.

The facts are always more interesting.

Other facts in this series:

Stephen Koukoulas is one of Australia’s most respected economists, a past chief economist of Citibank and senior economic advisor to an Australian Prime Minister. You can follow Stephen on Twitter/X @TheKouk.